Shank and Aguto: Congress Must Tax Fossil Fuels

The Environmental Protection Agency’s decision last week to delay greenhouse gas emissions regulations for new power plants — one of President Barack Obama’s main levers to limit global warming — is a serious setback to our country’s commitment to environmental and health safety. Thankfully, Congress can lead where the administration is not, and a perfect place to start is the House Ways and Means Committee’s bipartisan comprehensive public outreach effort to explore significant tax changes.

As part of this overhaul effort, we recommend that Congress pursue a tax on anthropogenic carbon dioxide pollution caused by the burning of fossil fuels. It may be the only way Congress can continue to foot the increasingly expensive bill that stems from global warming’s deleterious impacts on federal infrastructure. Examples of the financially untenable nature of climate change: The Government Accountability Office’s 2013 report on climate change cites everything from the Federal Emergency Management Agency’s $20 billion unpaid bill to the Treasury (as part of an $80 billion bill for 2004-2011 disasters) to the Flood Insurance Program’s outdated mapping system to the 30 U.S. military installations that already are at risk from rising sea levels.

While the House Oversight and Government Reform Committee was initially responsive to the GAO’s report — with ranking Democratic Elijah E. Cummings calling for hearings on the issue and Committee Chairman Darrell Issa showing concern with the lack of government readiness — more is needed. Why? Because extreme weather events are becoming more frequent, including last summer’s drought (causing $12 billion to $20 billion in damages) and Superstorm Sandy ($75 billion in damages). The National Oceanic and Atmospheric Administration reported that a record 14 weather and climate disasters in 2011 caused $1 billion or more in damages each, not including the incalculable loss of human life. These events ranged from extreme drought, heat waves and floods to unprecedented tornado outbreaks, hurricanes, wildfires and winter storms.

Congress needs to acknowledge the huge role anthropogenic carbon dioxide emissions play in these negative and costly impacts wrought by climate change. No economic policy mechanism currently accounts for the massive costs of such emissions. A tax on carbon pollution would be consistent with fundamental economic principles that account for the costs of negative externalities of pollution (not unlike how taxes on cigarettes account for negative externalities of secondhand smoke) and remedy, in light of the profound harmful impacts of climate disruption upon present and future generations, the greatest market failure existing today. To be clear, the tax would not be a substitute for the EPA’s authority to regulate carbon dioxide and other greenhouse gases. Here’s how it would work:

First, a national tax on carbon pollution would be based on prices and rates that reflect the real economic and social costs of its harmful impacts — thus accounting for its negative externalities. Suggested prices from various groups range from $15 to $35 per ton with rate increases of 2 to 8 percent per year. Consideration of national limits on carbon dioxide emissions, which are necessary to avoid catastrophic impacts of climate disruption, should also be considered as a basis for pricing and rates. Previous legislative proposals have rightly suggested aggressive goals, reducing emissions to 83 percent below 2005 levels by 2050.

Second, it would be applied progressively, in a way that returns the majority of the tax revenue to the American people, with a focus first on Americans who spend relatively high percentages of their income on carbon-based fuels, such as the poor, the elderly and those on fixed incomes, in order to substantially if not fully compensate for the increase in prices of essentials such as food, gasoline and electricity. Additionally, the revenue would be returned to workers whose livelihoods may be significantly impacted by the transition from carbon-based and renewable energy sources, through job training and procurement of other forms of employment.

Third, it would distribute a percentage of this revenue to support the transition from finite fossil fuel sources to renewable and infinite sources or energy. This is necessary for the long-term ecological and economic viability and sustainability of national and global human society.

Fourth, it would create a similar tax on imported goods (through a border tax adjustment) to ensure that American businesses are not disadvantaged.

To hasten this necessary energy transition, the tax benefits and other subsidies enjoyed by the fossil fuel industry over the past century must end. In its stead: a startup of the institutionalization of national policies supporting research, development and deployment of renewable-energy production.

Inaction on these fronts is financially unfeasible, as the GAO report suggests. The benefits of action rise dramatically the sooner action is taken, based on the precautionary principle that an ounce of prevention is worth a pound of cure. The repercussions of the ecological debt we are leaving to future generations, if unaddressed, will be far greater than our economic debt. A greener economy is waiting for us; now it’s up to us to seize it.

Michael Shank directs the foreign policy program at the Friends Committee on National Legislation. Jose Aguto directs the environment and energy program at the FCNL.